Press Releases Archived (March 2016)

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"Evidence-based decisionmaking is perhaps the best way to ensure that regulators are, in the long run, effective. Effective regulation entails making sound and fair decisions, without a hint of bias nor capture."

Commissioner Stella A. Quimbo of the newly formed Philippine Competition Commission (PCC), in her keynote speech at the Workshop on Competition and Competition Reforms in Key Sectors in the Philippines on March 2, said the PCC hopes to use existing research, commission new research, and undertake its own data analysis to help inform its decisions. The PCC's organizational structure, she explained, will have an entire division dedicated to research, including data collection, banking, and analysis.

"We envision that our work will not be informed solely by mere anecdotes, just-so stories, or hearsay. We will rule based on indicators, measurement, corroborated facts, and unwavering adherence to justice, fairness, and rule of law," Quimbo emphasized.

PCC is a quasi-judicial body tasked to ensure an efficient market competition by providing a level-playing field among businesses engaged in trade, industry, and all commercial economic activities; protect consumer welfare; and advance both domestic and international trade and economic development. The commission is mandated to conduct inquiries, and investigate and penalize all forms of anticompetitive agreements, abuse of dominant position, and anticompetitive mergers and acquisitions.

According to Quimbo, the commission will begin to review specific industries only after a systematic scoping study has been done. This scoping study shall be the basis for any reviews that the PCC may undertake in the future. It shall adopt a sound methodology for identifying industries for further review as well as look into sources of market power that can be traced to government policies and regulations that have the unintended consequence of promoting anticompetitive behavior.

Quimbo highlighted the contributions of state think tank Philippine Institute for Development Studies (PIDS) to creating a favorable intellectual and political climate that is conducive to competition reform efforts through extensive stakeholder consultations and evidence-based research that the Institute has continuously pursued. The latest of these initiatives was the Competition Reforms in Key Markets for Enhancing Social and Economic Welfare (CREW) project, a partnership of PIDS, the New Delhi-based Consumer Unity and Trust (CUTS) International, and Action for Economic Reforms (AER). Started in 2013, the CREW project looks at assessing the benefits of competition reforms on consumers and producers in the rice and bus transport sectors.

She also cited earlier studies of PIDS on competition policy and reforms such as the 2008 paper of Trade Assistant Secretary Rafaelita Aldaba that surveys market structure and anticompetitive practices in various industries. Another study is by PIDS Senior Research Fellow Erlinda Medalla released in 2002, which, Quimbo said, continues to be relevant and from which the Commission should derive inspiration as it draws its strategic plan.

"We hope that PIDS and other research institutions would continue generating high-quality research that are either industry or sector specific or that would feed into the broader questions on how to craft a national competition policy," she added.

The passage of the Philippine Competition Act of 2015 is the latest milestone in the long history of competition reform in the country. This law prohibits and penalizes anticompetitive agreements, abuse of dominant position, and anticompetitive mergers and acquisitions.

"While it took too long for this law to come to life, arguably, now is actually a good time to seriously implement such a law. With high gross domestic product growth rates in recent years, one way to ensure inclusivity of economic growth is by promoting the efficiency of markets through competition," Quimbo stated.

Competition, according to Quimbo, promotes two things: further growth by promoting entrepreneurial spirit and encouraging private investment and innovations, and sufficiently low prices and high-quality goods for consumers.

The spirit behind the law is not a narrow concept like increasing consumer surplus or ensuring that profits are not abnormally huge, but rather the broad idea of sustained economic growth and development, through a vibrant business sector with a broader base of ownership, whose benefits are shared by all, through job creation and ensured access to basic commodities, she elaborated.

PIDS President Gilberto Llanto, in his opening statement, also highlighted the importance of having robust competition laws and strong institution to enforce them in sustaining economic growth. He expressed hope that the results of the CREW project would be useful to policymakers, researchers, and other stakeholders in tackling competition issues, not only in rice and bus transport sectors, but also in other sectors such as retail trade, air transport, and banking and finance.

Aldaba likewise noted that the passage of the competition law will further boost competition to the benefit of consumers. She stressed that having a strong competition framework, particularly in the areas of logistics and transport, will help greatly in reviving the manufacturing industry.

Aldaba also underscored the need to address competition issues in the services industry, where a lot of market barriers still remain.

Liberalization is one of the necessary ingredients to enhance competition. And now that we have a Competition Commission, we can work together in pursuing necessary reforms needed for the country to participate in free trade agreements like the Trans-Pacific Partnership, Aldaba concluded.

The Workshop on Competition and Competition Reforms in Key Sectors in the Philippines was organized by PIDS, CUTS International, and AER to discuss the policy recommendations from the studies conducted under the CREW project on the state of competition and competition reforms in the bus transport and rice sectors. Competition issues, reform possibilities, and how the CREW methodology can be applied to other sectors, such as banking and finance, retail trade, and air transport, were also tackled during the workshop.

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State think tank Philippine Institute for Development Studies (PIDS) presented a framework that would help the government in assessing competition issues and in measuring the impacts of competition reforms on consumers, businesses, and the economy as a whole. Called the Framework for Competition Reform (FCR), this methodology is the product of the Competition Reforms in Key Markets for Enhancing Social and Economic Welfare (CREW) project conducted by the Institute in partnership with New Delhi-based Consumer Unity and Trust (CUTS) International and the Action for Economic Reforms (AER).

Using the FCR, the CREW project initially looked at competition issues and the impact of competition reforms in the countrys rice and bus transport sectors. According to PIDS President Gilberto Llanto, the same framework can be applied in assessing market competition in other sectors.

"Learnings from this project would be useful to policymakers, researchers, and other stakeholders in tackling competition issues and in measuring the impact of competition reforms in other sectors such as retail trade, air transport, as well as banking and finance," Llanto explained during a workshop held last March 2 at the PIDS office in Quezon City.

The completion of the CREW project is timely given that the country is in the initial stage of implementing the Philippine Competition Act of 2015, which took 25 years before passing the legislative mill. The end goal of this law is to benefit consumers with more choices and lower prices, which are products of market competition.

According to CUTS International Senior Research Associate Neha Tomar, the CREW project is aimed at fixing the "gap between knowing the competition law and implementing the same" by providing policymakers and practitioners a robust evidence-based methodology to understand the impact and value of reforms. Thus, the FCR is designed to enable practitioners to map out the variables for producer and consumer welfare, and determine the impact of reforms.

The CREW project was implemented in Ghana, India, Philippines, and Zambia, and studied two basic sectors--staple food and passenger transport.

In assessing the state of competition in the rice sector, the PIDS project team looked into the major reforms introduced by government in the sector in view of the imminent abolition of the quantitative restriction (QR) on rice importation. The study specifically provided evidence of the impact of QR on the domestic price of rice and on consumer welfare, and did an evidence-based assessment of options for protecting the interest of rice farmers. These include a proposal to provide adjustment package upon the abolition of QR in 2017, which is a transfer scheme over and above the existing production support provided by government.

In 1995, the Philippines was granted special treatment in rice, which allows the country to set a ceiling on the amount of rice to be imported over a given period. The ceiling is determined by the state-run National Food Authority, which has the import monopoly for rice.

PIDS Senior Research Fellow and CREW Project Director Roehlano Briones cautioned that the removal of the QR on rice will result in massive fall in domestic rice prices, hence, it is imperative to provide farmers a measure for income support.

"The inevitable transition to a more open rice trade regime should be accompanied by safety nets for smallholders suffering from intensified competition from imports. We have evaluated a compensatory transfer scheme combined with a 35-percent tariff equivalent as a possible support scheme once special treatment is removed," Briones explained.

For the bus transport sector, the PIDS study looked at options for consolidating buses as part of a strategy to decongest Metro Manilas busiest thoroughfare--the Epifanio De Los Santos Avenue or EDSA. These options include consolidating bus operators into a consortium to bid the right to operate on a specific route and converting the buses into bus rapid transit systems. In her presentation, PIDS Consultant Hope Gerochi also enumerated the benefits, costs, and risks involved in the consolidation strategy, as well as implications for fair competition, compared to major alternative strategies.

Assessments of the state of competition in other industries in the country, such as airline, banking and finance, and retail trade, were also presented during the forum.

In her discussion, REID Foundation President Cherry Lyn Rodolfo, enumerated the positive impacts of competition reforms on the airline industry. These policies include the liberalization of air service agreements, which allowed Cebu Pacific to enter the Hong Kong and Singapore markets, and the passage of Pocket Open Skies, which opened up secondary gateways to international flights in 2011, and the recent ratification of ASEAN Open Skies, which allows airlines from all 10 ASEAN member-states to fly freely throughout the region.

According to Rodolfo, although the Philippines is "still not at the same level of growth as Indonesia in terms of passenger carrying capacity of airlines, growth has been positive since 2009."

This growth has been achieved despite major barriers such as poor infrastructure and congestion at the countrys main airport, Ninoy Aquino International Airport, which prevent international airlines from entering the Philippine market.

Rodolfo also enumerated some competition issues in the airline industry such as market definition issues, drip pricing, impacts of code share arrangements, mergers and alliances, lack of access to essential inputs such as slots and check-in counters, and weak consumer and users group.

"These are issues that we believe we have to contend with and try to address because they are limiting the positive impact that the air transport can make," said Rodolfo.

She insisted that solutions have to be holistic and long term. The airline industry would benefit a lot, she said, from implementing changes, such as having a new organization installed to oversee functions that should no longer be under the Civil Aviation Authority of the Philippines (CAAP). She noted that CAAPs primary concern should be the safety of consumers.

On the part of the banking industry, Dr. Alvin Ang of the Ateneo de Manila Universitys Department of Economics spoke about the sectors shortcomings in balancing efficiency, financial stability, and access of firms and households to financial services.

"The banking sector faces a lot of competition problems like having high barriers to entry and exit. Lowering these barriers would generally lead to greater product differentiation, lower costs of financial intermediation, more access to financial services, and enhancing stability," Ang explained.

Ang also underscored the problem of private banks disproportionately outranking the market share of thrift and rural banks. According to Ang, the top five banks in the country account for 54 percent of the total assets of the banking sector. On top of these, the banking sector is also concerned with improving financial inclusion and financial literacy.

Ang commented that it is necessary to undertake reforms to liberalize the financial markets not just to promote the domestic banking industry but also to prepare Philippine banks to participate and compete in the integrated ASEAN regional financial system. Currently, no Philippine bank has qualified to be an ASEAN bank, shutting them out from accessing a larger market.

"Philippine banks are among the smallest in the ASEAN in terms of asset. The Development Bank of Singapore, for example, is bigger than the entire Philippine banking system," he added.

Lastly, Dr. Roberto de Vera from the University of Asia and the Pacific enumerated the competition concerns of the retail trade sector, including the need to develop and empower small and medium enterprises for a more inclusive market and more vibrant competition.

CUTS Associate Director Rijit Sengupta wrapped up the seminar affirming the importance of evidence-based research behind every competition-related change. "The Philippines has shown great interest and strong intent in solving its competition issues. Thus, the Philippine Competition Commission will find no shortage in partners from the academe, industries, regulatory bodies, and civil society to convey the message that competition will be promoted in every level of the economy without fear or favor," he concluded. ###

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Dr. Alfredo E. Pascual, president of the University of the Philippines (UP), has joined state think tank Philippine Institute for Development Studies (PIDS) as the newest member of its Board of Trustees. He was sworn in on March 15, 2016, by Socioeconomic Planning Secretary and NEDA Director-General Emmanuel Esguerra, who is also the chairman of the PIDS Board of Trustees.

Serving as UP president since 2011, Pascual's administration is distinguished by his commitment to reforms, programs, and projects that steered the premier state university to becoming more research-intensive and internationally competitive. Prior to his UP presidency, Pascual worked for the Asian Development Bank for 19 years, during which he is credited with various projects and initiatives in aid of the bank's objectives in development financing and investment in Asia's developing economies. Pascual was also an educator at the Asian Institute of Management.

Currently, Pascual divides his time as president of the UP system, professorial lecturer at the College of Economics and Management of UP Los Banos, chairman of the UP Foundation, Inc., and the UP Provident Fund, Inc., and trustee of the International Rice Research Institute. His enormous list of sterling accomplishments in academic research and management, and institutional development makes him a valuable addition to PIDS.

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Proposals to amend the personal income tax schedule appear to be well-justified. However, these proposals should include measures that will allow government to recover the revenue loss from lower income taxes.

Dr. Rosario Manasan, senior research fellow of state think tank Philippine Institute for Development Studies (PIDS), said at a seminar sponsored by the Philippine Senate, that government should look for new revenue measures to compensate for the projected revenue loss that will arise as a result of the implementation of any of the various proposals to restructure the personal income tax.

Currently, there are several income tax reform proposals pending in both houses of Congress. All of them, according to Manasan, have the same objective of addressing the phenomenon of bracket creep, which results from "non-indexation to inflation of personal income tax brackets". Simply put, bracket creep occurs when employees' income increases over time as a result of inflation. This pushes them to pay higher taxes, but their purchasing power remains the same. The Philippines has not adjusted its personal income tax system since 1998.

Manasan also noted that the proposals all attempt to reduce the country's high personal income tax rate relative to its neighbors in the Association of Southeast Asian Nations (ASEAN). In particular, the Philippines' top marginal personal income tax rate of 32 percent is higher than that of all the ASEAN member-states with the exception of Thailand and Viet Nam.

The proposals to amend the personal income tax law assessed in the PIDS study were Senator Recto's Senate Bill 716, Senator Aquino's Senate Bill 1942, Senator Angara's Senate Bill 2149, Rep. Quimbo's House Bill 4829, and Rep. Colmenares and Rep. Zarate's House Bill 5401. Similar proposals have been raised by the private sector, most notably the Tax Management Association of the Philippines (TMAP).

According to Manasan, Recto's SB 716 and Quimbo's HB 4829 will reform the personal income tax system by adjusting the tax brackets according to changes in consumer price index between 1998 and 2015. Meanwhile, Aquino's SB 1942 will exempt incomes below PHP 60,000 and raise the top bracket income threshold to PHP 12 million.

Angara's SB 2149 will affect changes in tax rates in phases over a span of three years, reducing the bottom marginal tax rate from 15 percent to 10 percent and the top marginal tax rate from 32 percent to 25 percent. Under this proposal, all incomes below PHP 20,000 will also be exempted from taxation. Colmenares and Zarate's HB 5401 exempts income below PHP 396,000 and raises the top threshold to PHP 2 million.

Manasan noted that all of the proposals to amend the personal income tax schedule are clearly progressive given that the associated effective tax rates computed for various taxable income levels rises as the corresponding taxable income increases. However, she pointed out that some proposals are less progressive, particularly Angara's SB 2149 and Quimbo's HB 4829.

Manasan's analysis shows that the tax liability in Angaras bill actually increases for those in the lower bracket during the first two years of its implementation while Quimbos bill increases tax for nonwage tax payers below the PHP 500,000 mark.

"As for losses in government revenue, the costliest bills are Quimbos HB 4829 and Colmenares and Zarate's HB 5401, which is estimated at PHP 130 billion and PHP 232 billion, respectively. In contrast, Recto's SB 716 will result in a revenue loss of around PHP 52 billion for the government while Angaras SB 2149 will cost the government PHP 10 billion in the first year and PHP 61 billion in lost revenues for the third and final year," Manasan explained.

PIDS' fiscal expert noted that whichever proposal passes into legislation, government revenue will suffer. One way for government to recover the revenue loss is to increase the value-added tax (VAT) rate. For instance, Manasan pointed out that a one-percentage point increase in the VAT rate is enough to recover approximately PHP 26.25 billion loss in revenue from other taxes such as the personal income tax. However, she noted that raising the VAT rate would nullify the increased purchasing power resulting from the modification in the personal income tax rate schedule, especially among the poorer segment of the population.

"Increasing the VAT will only recover revenue loss to a certain point, assuming that the increase in disposable income is fully spent. Moreover, the poorest will remain the hardest hit if the price of goods increases proportional to the VAT," Manasan underscored.

Another option, she said, is to levy an excise tax on sugar-sweetened beverages, which based on the computation of the Department of Finance, will give government an additional PHP 30 billion yearly.

Alternatively, government can apply an additional variable excise tax rate on petroleum products or increase the road user's tax and motor vehicle user charge. According to Manasan, both measures will have a positive impact on the environment through reduced pollution and congestion.

Meanwhile, Former TMAP President Rina Manuel remarked at the lecture that the estimated billions in losses will be a "real price to pay."

Apart from compensatory measures, Manuel thinks that taxation could be largely improved by improving the collection system, and establishing a "specialized tax payer program" for the self-employed and for the professionals.

As the presidential election looms, tax reform has increasingly become a critical election issue. Tax reform is overdue, and experts opine that a comprehensive tax reform should be a top priority for the presidential candidates. "I think our candidates should make a stand on this issue so that voters know what they are voting for," Manasan concluded. ###

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State think tank Philippine Institute for Development Studies (PIDS), in partnership with the Central Luzon State University (CLSU), will conduct a forum on the assessment of the irrigation and postharvest facilities, two of government's flagship agriculture projects, on March 30, 2016 at the CLSU Campus in the Science City of Munoz, Nueva Ecija.

One of the papers to be presented is an evaluation of irrigation facilities conducted by a multidisciplinary team of PIDS consultants. Arlene Inocencio, former PIDS research fellow and currently professor at the De la Salle University-Manila, will present the findings and recommendations of her team related to the technical/physical and institutional aspects of irrigation management and development for national and communal irrigation systems.

The irrigation sector in the country has long been facing issues of underdevelopment, mismanagement, and environmental degradation. Despite receiving a third of the total budget for agriculture, the sector has fallen short in delivering what is expected from it. The PIDS study, which evaluated 66 communal irrigation systems and 22 national irrigation systems in 16 provinces in Luzon, offers an inclusive approach to tackle the complex issues that hound the irrigation sector. Specifically, the paper proposes a systematic approach to water allocation and distribution, an integrated development plan, and a review of existing policies and regulations that possibly hamper the growth of the irrigation sector.

For the second presentation, findings on the assessment of the government's programs to address the problem of postharvest losses incurred in the various stages of food supply chain such as on-farm postharvest activities, processing, logistics, marketing, and trading will be presented. The PIDS paper by Nerlita Manalili, Kevin Yaptenco, and Alessandro Manilay, assessed the effectiveness of the rice processing centers and food terminals in the provinces of Pangasinan, Davao del Sur, Bohol, and Iloilo.

The PIDS study notes that overall, the postharvest facilities in these provinces have positive impact in addressing postharvest losses and improving the marketing system for rice and high-value crops. For example, the authors computed the total gain in farmers' income due to higher buying prices at around PHP13.9 million. Without these facilities, the authors contended that farmers could easily lose some PHP 286.96 million.

This policy research forum is part of the Institute's program to disseminate findings from studies conducted to evaluate the effectiveness and impacts of key government programs and projects. Spearheaded by the National Economic and Development Authority and the Department of Budget and Management, these impact evaluation (IE) studies were conducted to promote greater transparency and accountability in government. Through these IE studies, policymakers and program implementers will have concrete basis in determining whether a particular program is achieving its intended outcomes or whether it needs to be fine-tuned or discontinued.

According to PIDS President Gilberto Llanto, CLSU"as one of the countrys premier academic and research institutions for agriculture"is the best partner in conducting a forum to disseminate the results of these studies to stakeholders in Central Luzon, where most of the countrys rice supply is produced. ###